The basic premise of a wrongful dismissal claim is that in the absence of an enforceable termination clause in an employment agreement, which may limit an employee’s entitlement to notice to that which is set out in Ontario’s Employment Standards Act, 2000, employees are entitled to working notice prior to being dismissed from their job. An employer who fails to provide an employee with a working notice may be subject to a claim for what the employee would have been paid during that working notice period. For instance, if the employee’s compensation consists of a base salary only, then the employee’s damages would be based on determining first the salary of the employee and, second, the value of the salary over the hypothetical notice period that the employee was deprived of. The employee’s length of notice depends on the employee’s age, length of service, character of employment and the availability of similar employment opportunities in the future.
These issues may get a little be more nuanced when dealing with employees that may are an executive employee. For instance, it is not uncommon for short-term executive employees to receive relatively lengthy notice periods. Indeed, there are cases where executive employees are employed for only a few months and receive as high as 5 months in termination pay. The theory behind it is that the number of jobs available to executive employees is generally smaller than other types of employees and, as such, the competition in those markets for jobs is greater. Ontario courts have even acknowledged the fact that short-term executive employees would have a hard time explaining the duration of their short service with the dismissing employer, thereby resulting in a more difficult time obtaining alternative employment upon termination.
Further, executive employees often receive various forms of compensation during their employment that are beyond a mere base salary. Among other things, executive employees get “sign-on bonuses,” “retention bonuses” or “incentive bonuses.” These forms of compensation are often paid at the beginning of the employee’s employment or during the first few stages of the employee’s employment with the purpose of retaining the executive employee. In fact, some such compensation is made on the condition that it would be repayable to the employer if the executive employee’s employment ends before the completion of a certain trial period (the enforceability of repayment clauses is the subject matter of another discussion).
Executive employees are also often entitled to receive various perks such as a car allowance, group insurance coverage, retirement contributions including pension and other fringe benefits such as club memberships and spending accounts.
Another form of compensation that is available to executive employees is performance-based bonuses and those bonuses may be substantial. Performance-based bonuses are normally payable to the executive employee upon that employee meeting of certain company metrics and of high dollar value. Most performance-based bonuses that are payable to executive employees are predicated on the company’s financial performance and the employee’s personal performance. Entitlement to such bonuses is typically evaluated at the conclusion of the company’s fiscal year and are payable in the first quarter of the next fiscal year.
Another typical form of compensation that is normally payable at the “executive” level, comes in the form “equity.” Equity may involve restricted share units, stock options, preferred shares, performance share units, etc. This form of compensation could be very lucrative depending on the value of the share at the time of hire, vesting conditions and the status of the equity at the time of the executive employee’s termination. Moreover, stock value may fluctuate and what it is worth at the time of the executive employee’s dismissal may be different to what it will become during the employee’s working notice period. If the employee is dismissed effective immediately, the parties may require the hiring of experts to determine the value of a particular stock which may make the difference between a nominal amount and hundreds of thousands of dollars of compensation.
One thing to note about executive employees is that unlike “mere” or “regular” employees, executive employees may still be bound (at least in theory) by restrictive covenants in the form of non-competition or “non-compete” clauses at the conclusion of their employment. Although the enforceability of restrictive covenants was often heavily scrutinized by the courts, a few years ago, the Ontario government passed into law a prohibition on restrictive covenants that seek to prevent competition in the open market. Crucially, the law carved out two exceptions to the prohibition on non-competition covenants. A non-competition covenant remains available in the event that the employee was once the owner of the business sold to the employer or where the employee in question is an executive employee such as a CEO, COO, CFO, etc.
Moreover, executive employees are often considered “key employees” or “fiduciary employees” who carry post-employment responsibilities that exceed those of a regular employee. For example, even in the absence of a restrictive covenant, executive employees may have more serious constraints on their ability to compete with their former employer. Although fiduciary employees are typically still allowed to compete post-employment, they are allowed to compete only fairly. Fiduciary employees are not allowed to solicit clients or employees of their former employer where they acted in an executive or fiduciary role.
Conclusion
Executive employees who find themselves terminated from their job, even if without cause, would be wise to consider whether the termination package they are presented with is reflective of their status, forms of compensation that go beyond their salary, the likelihood of obtaining comparable employment in the future and their post-employment obligations that may be more onerous than those imposed on non-executive or regular employees who suddenly find themselves out work.
